Item 1.01.
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Entry into a Material Definitive Agreement.
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Bisco Industries, Inc. (“Bisco”),
a wholly-owned subsidiary of EACO Corporation (”EACO”), entered into two separate business loan agreements with Citizens
Business Bank (each, a “Loan Agreement” and collectively, the “Loan Agreements”), both of which were dated
July 12, 2019, however, such agreements (and ancillary documents) were not signed until July 15, 2019 and did not become binding
upon Bisco or EACO until July 18, 2019. Bisco and EACO are sometimes collectively referred to herein as the “Company.”
Modification of $10 Million Line of Credit
The first Loan Agreement modifies Bisco’s
existing $10 million line of credit with Community Bank, which bank was previously acquired by CVB Financial Corp., the parent
company of Citizens Business Bank. In August 2018, Community Bank was merged with and into Citizens Business Bank. While Bisco
technically entered into a new Loan Agreement with Citizens Business Bank to reflect Citizens Business Bank as the surviving corporation
in the merger as the lender (the “Lender”), Bisco entered into a Change in Terms Agreement with the Lender to modify
the terms of its existing line of credit pursuant to its original Promissory Note dated July 14, 2016 with Community Bank. Pursuant
to this Change in Terms Agreement, Bisco’s existing line of credit with the Lender was modified (i) to extend the expiration
date of the line of credit under this Loan Agreement to July 5, 2021; (ii) to change the monthly payment date to the fifth of every
month; (iii) to modify the variable interest rate on the line of credit, which is subject to change from time to time based on
changes in an index, which is the Lender’s bank prime rate of index; (iv) to modify the interest rate options available to
Bisco under this line of credit; and (v) to replace the preferred rate of interest with a discounted rate. The index rate for this
line of credit is currently 5.5% per annum.
Under this line of credit, Bisco may borrow
from the Lender up to $10,000,000 from time to time. EACO continues to guarantee the performance of all of Bisco’s obligations
under this line of credit and has entered into a new Commercial Guaranty with the Lender to reflect the merger and this continuing
guaranty.
New Loan Agreement
Bisco also entered into a new Loan Agreement
with the Lender to borrow up to $5 million from the Lender (the “Real Estate Loan”) for the primary purpose of financing
tenant improvements on the real property located at 5037 and 5065 East Hunter Avenue, Santa Ana, California (the “Property”),
which will serve as the Company’s new corporate headquarters. This Property is owned by a trust beneficially owned and controlled
by Mr. Glen F. Ceiley, the Chief Executive Officer, Chairman of the Board and majority stockholder of EACO (the “Trust”).
Bisco is currently negotiating the terms of the lease for such Property from the Trust. The Real Estate Loan is a line of credit
evidenced by a Promissory Note (the “Real Estate Note”) in the principal amount of up to $5,000,000 with a maturity
date of May 15, 2027. The terms of the Real Estate Note provide that Bisco may only request advances through July 15, 2020, and
thereafter, the Real Estate Loan will be a term loan. Interest on the Real Estate Note is payable monthly subject to variable interest
rates based on the bank’s internal prime rate.
Concurrent with the execution of this Loan
Agreement and related Real Estate Note, Bisco entered into a Commercial Security Agreement, also dated July 12, 2019, with the
Lender (the “Security Agreement”), pursuant to which Bisco granted the Lender a security interest in substantially
all of Bisco’s personal property to secure Bisco’s obligations under the Loan Agreement.
The Trust has also guaranteed Bisco’s
obligations under the Real Estate Loan and granted a Deed of Trust on the Property to Fidelity National Title Company as trustee
for the benefit of the Lender and has also entered into an Assignment of Leases and Rents with the Lender dated July 12, 2019.
Each of the Loan Agreements contain customary
affirmative and negative financial and other covenants. The Loan Agreements provide for several events of default including, any
change in ownership of 25% or more of the common stock of Bisco. Upon an event of default, Citizens Business Bank may, among other
remedies, accelerate the payment of all indebtedness, charge default interest and take possession of the collateral in which it
has been granted a security interest.
The foregoing descriptions of the Loan Agreements,
the related Promissory Notes, the Commercial Security Agreement, the Change in Terms Agreement and the Commercial Guaranty do not
purport to be complete and are qualified in their entirety by reference to the actual documents which are attached to this report
as exhibits and are incorporated herein by reference.